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The effects of extreme high temperature spells on financial performance

Author

Listed:
  • Griffin, Paul A.
  • Lont, David H.
  • Lubberink, Martien J.P.

Abstract

We examine EU and UK firms to investigate the impact of spells of extreme high temperature on three common financial performance measures: the ratio of sales-to-assets, pretax profit margin, and return on assets. Supporting our hypotheses, we find that spells of extreme high temperature have a curvilinear impact on financial performance. While extreme high temperature spells tend to degrade financial performance in regions or months with normally hotter conditions, the opposite effect is observed for extreme high temperature spells in regions or months with normally cooler conditions. Given our environmental context, where the standard temperature is about 16°C, high temperature spells with maximums that well exceed that temperature have marked financial implications. We also find that spells in locations with maximum temperatures above 23°C associate with smaller improvements in ESG scores and higher carbon emissions in the future, suggesting that managers’ actions to mitigate the risks of high temperature spells are limited at best. Our evidence of significant impacts of extreme temperature on firm performance but little action in response supports the view that managers need more guidance on how to measure the risks and opportunities of extreme weather events and the policies to manage them.

Suggested Citation

  • Griffin, Paul A. & Lont, David H. & Lubberink, Martien J.P., 2025. "The effects of extreme high temperature spells on financial performance," The British Accounting Review, Elsevier, vol. 57(2).
  • Handle: RePEc:eee:bracre:v:57:y:2025:i:2:s089083892400132x
    DOI: 10.1016/j.bar.2024.101383
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    More about this item

    Keywords

    Extreme high temperature spells; Response of financial performance to extreme high temperature; Curvilinear impact; ESG performance; Carbon emissions;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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